Wave of enforcement forces labs to look at relationships with physicians

Call it the enforcement "flavor of the month," but laboratories have recently felt the heat from federal investigators--particularly those interested in their relationship with physician practices that may run afoul of the anti-kickback statute.

The recent $48.5 million settlement with Health Diagnostic Laboratories Inc. (HDL) and Singulex Inc., coupled with a special fraud alert released by the Office of Inspector General (OIG) last July, and a subsequent advisory issued last month, show that the industry is experiencing a wave of enforcement, Tony Maida, a partner with McDermott Will & Emory LLP, said in an exclusive interview with FierceHealthPayer: AntiFraud (pictured right). Maida previously served as a senior official in the Office of Counsel to the Inspector General at the United States Department of Health and Human Services.

He said we're likely seeing more federal scrutiny of labs because of the government's perception of industry practices over the last several years.

"I think labs sort of fit within that [category of] ancillary service providers where an increase of Medicare dollars are coming from, along with home care and hospice and other areas, where they are seeing a lot of Medicare expenditures," he said. "The investigations go where the money is."

Medicare expenditures for laboratory services are increasing in part because the beneficiary population is increasing--but it's also a sector in which physicians can choose where to send lab tests, which makes for a highly competitive market.

"Sometimes insurance companies limit those choices, which sort of shows that the lab industry is pretty competitive and [companies are] trying to gain market share where they can," he said. "That can create some incentives to do things that are pushing the line."

Interpreting OIG guidance

An advisory opinion released by the OIG in March provided some insight into how the agency views exclusive agreements with physician practices. In some ways, the advisory appeared counterintuitive. The OIG said that entering into agreements with physician practices that would waive patient fees for insurance plans that require the use of a different laboratory could be "potentially generate prohibited remuneration under the anti-kickback statute," even though it could lead also lead to improved efficiency for the provider.

Maida said providers should recognize that the OIG only issues a favorable opinion if there is minimal risk of fraud and abuse. Once the agency releases a favorable opinion, everyone will adopt that practice. However, he recognized that it may have a chilling effect on providers--and it's at least one example of healthcare regulation impeding efficient and effective care.

"The situation of providing free services is going to make it really difficult for the OIG to issue a favorable position, but that doesn't necessarily mean it would be a kickback violation or that it would be a good case to prosecute because of those efficiency reasons," he said.

The advisory, coupled with a special fraud alert released last July on lab payments to physicians that exceed fair market value, shows that the government is aware of the current practices within the industry. Based on the recent HDL settlement, it's clear some of those practices are viewed as problematic.

"They shot out the warning and then followed up with an enforcement action," Maida said. "There might be more coming because of that."

Labs should know arrangements

The relationship between providers and laboratories has always been of interest to government investigators. In fact, one of the first special fraud alerts, released by the OIG in the 1990s, was about labs, Maida said. In the past, labs have drawn criticism for bundling expensive tests with less-expensive services. Although that approach is not necessarily illegal in and of itself, it's one that has drawn scrutiny, as labs could be billing for unnecessary services that weren't actually ordered by the physician.

Historically, laboratories have been viewed in the context of a vendor, Maida added, since they frequently provide a service for the physician and receive payment from for that service either from the physician or by billing an insurance company. As a result, investigators perk up when the money flows in the other direction.

"Any time there is payment from a lab to a physician, that needs to be done carefully to make sure you mitigate your anti-kickback risk because I think that the government would expect payments not to go in that direction," he said. "What services [is the physician] providing to the lab that they need to be paid for?"

In those instances where physicians are paid a fee, the question of fair market value arises. Specifically, the feds may look at the amount that was paid in comparison to what Medicare would pay.

Although Medicare payments may not represent the best definition of "fair market value," that will be the measuring stick that the government uses, according to Maida. Going above and beyond that amount will likely draw criticism.

"The bigger the delta, the more questions he government is going to ask," he said.